Oppenheimer’s Christopher Glynn recently held the top spot on TipRanks’s Top 25 Analysts list for two consecutive weeks, which sounds about right, given his 75% success rate on picks, yielding an average return of 15.3% over a one-year period. Normally, this kind of an achievement would be individual in its nature and noteworthy only in its significance as a milestone for Mr. Glynn; however, there are six other research pros in Oppenheimer’s equities research department who were also among the week’s top 25, which begs the question: What’s going on over there?
TipRanks’ data-driven algorithm calculates two things: The percentage of a given analyst’s ratings that resulted in a positive return, and the average return per recommendation. Naturally, then, the more data collected on an analyst, the more statistically significant the measurement will be.
Given the consistent presence of Oppenheimer analysts in the top 25, everyone who’s anyone in the trading world has to be wondering what’s behind their success.
John Parks, the Director of Research at Oppenheimer, was recently interviewed. During that interview, he afforded the rest of us the opportunity to learn about the methodology behind his team’s success.
One of the biggest challenges posed to equities research analysts is foreseeing trends within the companies they cover, as well as their particular markets. For those analysts at Oppenheimer, a high premium is placed on staying ahead of the curve.
Parks noted that his team takes a more intimate approach with their companies, as they formally review their recommendations and targets every four to six weeks; however, he made it a point to be clear about real-time evaluation being constant.
TipRanks users are among the first to see an analyst’s contrarian recommendations, a new Upgrade when most analysts are recommending otherwise. Parks was asked to discuss recent examples in which one of his team members broke from the pack and came away with one such recommendation.
“Glenn Greene, who covers Financial Technology & IT Services, made an excellent contrarian call on Jack Henry (JKHY) that paid off very handsomely,” Parks said. JKHY is an S&P 400 company that supports more than 11,300 financial institutions with core processing services.
When Greene upgraded Jack Henry to Outperform on March 1, 2016, he was one of only nine analysts covering the stock with a buy rating, Parks said. Over the course of the following 18 months, Greene became the only one with a buy rating until he downgraded the stock on August 23, 2016. During that period, shares of Jack Henry appreciated about 33% versus about a 3% gain for the S&P 500 index.
A year ago, there were four Buys and eight Holds for Xylem (XLP) when it became the top water infrastructure play for Jim Giannakouros. He’s maintained that contrarian view for 12 months while those shares appreciated by more than 50%, Parks said.
Finally, the third contrarian example provided by Parks was a story about Brian Bittner’s recommendation for Jack in the Box (JACK). He recommended the fast-food chain’s shares in August 2015 as they sold off with the restaurant group. In the 12-plus months since that call, Bittner has defended the stock with the thesis that JACK was undervalued and has many levers for growth. Since the March lows, shares have risen over 50%.
When asked about what lies ahead that could change or force an evolution for equities research, Parks said that much of his time is spent thinking about big data and how best to leverage it. The availability of so much data, for him, is an opportunity that every analyst worth his or her salt must understand and harness.
It’s also worth noting that machine analytics alone aren’t going to replace analysts. Instead, they will challenge those analysts to up their respective games. At the same time, according to Parks, using bigger data flows creates a need for greater vigilance over the quality and source of that data. Knowing what to make of the data will continue to be core to any analyst’s skill set.
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